This video addresses a real life situation were a D&O insurance carrier agreed to pay for defense of an investigation, but attempted to pay for only half of the defense costs incurred. As is typical for these kinds of governmental investigations, both the SEC and DOJ were involved. One agency issued a subpoena triggering coverage, and the other agency monitored the situation. The D&O insurance carrier alleged that there were two investigations, and offered to pay only half of the costs incurred.
Please watch the video to learn more about how to defeat this common argument.
For a transcript of the video please see below.
D&O Insurance Coverage for Government Investigations
This is an example of a situation that many of our clients find themselves in with these federal government investigations, and that is they haven’t done anything wrong yet they’re spending millions and millions of dollars trying to work with the government to resolve the matter. They’re defending themselves. I mean they’re out there doing what the government is asking them to do because they have to. It’s not something they’re voluntarily doing and it’s not something that they chose to do. They’re just unfortunately in a bad situation and they need to respond accordingly.
In these situations it’s not uncommon for the defense cost to be north of five million dollars, sometimes north of ten million dollars. These investigations are very expensive and that’s why we think insurance is important. Once we convince the carrier that they had to pay, once we’ve sued them, once they’ve showed up and said we want to talk, of course they came up with some other reasons to limit coverage. One of the reasons they said is well, you had two investigations going on, not one. The SEC issued the subpoena, but piggybacking on the SEC, which is typical here was the Department of Justice. The way some of these investigations work, there’s a civil side and a criminal side. Civil side of the federal government would be the SEC in this situation and the criminal side would be the DOJ, Department of Justice.
The insurance company came up with this argument, “hey you got two investigations because you’ve got two federal agencies looking at you.” We said “no, that’s not what’s happening here. It’s one investigation and the Department of Justice is looking at this as well over the shoulders of the SEC just trying to see if something’s going to happen there. The defense cost we’re incurring are for this one investigation.” They said “no, hold on a minute. We think it’s two investigations. Oh and by the way, the DOJ never filed a subpoena so you don’t have a claim for the DOJ. We want a fifty percent haircut.” We see you spent a lot of money but we’re going to only pay fifty percent of it.
We got around that as well with the insurance carrier but it’s just an example of first they may say no. They did say no here. Second, when they say we get it, we’re going to have to pay, they say we’re only going to pay a portion of that. Another example of first turn around the denial and second move the number up from when they say they’re only going to pay part of what the defense costs are.